Mr. Chair, my name is Ken Kobly, and I'm the president and CEO of the Alberta Chambers of Commerce. With me today is Don Oszli, our past chair.
Thank you to you, Mr. Chair, and to members of the committee for this opportunity to present to you our policy advocating the reintroduction of the accelerated capital cost allowance for oil sands and extending it to include resource processing investment.
By way of introduction, the Alberta Chambers of Commerce is a voluntary federation of 124 community chambers in the province of Alberta who in turn represent in excess of 22,000 businesses. As well, all chambers in Alberta are proud members of the Canadian Chamber of Commerce. The Alberta Chambers of Commerce is the largest business organization in Alberta. We count among our members small, medium, and large businesses. Our policy process is at the grassroots, being developed, submitted, and approved by our community chambers; therefore, it reflects the opinions of our member businesses. Every business in Alberta, and I would dare say Canada, is affected by the health of the oil patch. Whether it's labour sourced from Newfoundland or manufactured materials coming from Ontario, the oil sector has a dramatic positive impact on the economy of Canada as a whole.
Specifically, today we wish to encourage you to reintroduce the accelerated capital cost allowance for oil sands investment and further extend it to merchant upgraders in the petrochemical industry. The ACCA was first introduced in 1996 to encourage investments in the oil sands. It proved to be a great stimulus to the industry. However, it was removed in Budget 2007. This, coupled with the major economic downturn we've seen since 2008, has resulted in almost all major industry construction shelved. Indeed, there was over $150 billion in planned spending on the books before oil prices collapsed. There is now, however, some cautious optimism in the sector, and government has within its power to add an additional piece of encouragement to the optimism by reinstating the ACCA.
By the numbers, the construction of one upgrader has the following economic impacts.
The capital cost of an upgrader is approximately $5 billion. The construction period, which comes after an 18-month engineering and planning phase, is approximately four years. So you can see the outlay of capital dollars takes at least five and a half years until the first dollar of production revenue is seen. During the construction phase, 3,500 jobs are created for the full four-year construction period. The average wage during this period is $75,000 per year. This would generate in excess of $263 million in employment income per year, as well as $42 million in personal federal tax per year on that income. There is also a benefit to all provinces in addition to the federal taxes collected, as approximately 44% of the jobs created by oil sands investment are generated outside of Alberta. It would also produce an estimated $195 million in corporate tax from the construction companies working on the project. These numbers indicate that for the first five and a half years after approval of an upgraded project, the big winner would be the federal treasury in terms of personal and corporate taxes collected. We have not included any multiplier in these numbers for the spin-off effect of the additional spending in the economy.
Capital cost allowance is a deductible expense under the tax act, which is available to every business in Canada to help them recoup a portion of the cost of acquiring capital assets. Capital cost allowance allows a business to write off a portion of their investment in capital assets against income every year, thereby reducing their tax bill by a percentage of the capital cost.
The ACCA is much the same. The difference between the two is the length of time to recover the portion of the capital cost. As the name indicates, under accelerated capital cost allowance, the recovery rate is somewhat faster.
However, at the end of the day, the cost to the federal treasury is the same, as noted in a Finance department study, written in 2001, by Ketchum, Lavigne, and Plumber. To reinforce an earlier point, it is at least five and half years until any revenue is generated by the project and the first penny of capital cost allowance is claimed. Further, the ACCA may only be claimed to the extent that the particular project is profitable. This is not a subsidy. As the quoted authors pointed out very correctly in their paper, this is a timing difference.